Understanding EMI: How Your Monthly Payment Is Really Calculated

EMI (Equated Monthly Instalment) on most Indian loans follows the reducing-balance method. Each payment covers that month's interest on the outstanding principal, and the remainder reduces the principal itself.

The formula is: EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1), where P is the principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of months.

In the early years, a larger share of your EMI goes toward interest; toward the end, most of it reduces principal. This is why prepaying early in the tenure saves the most interest.

When comparing offers, look beyond the EMI: check the processing fee, foreclosure charges and whether the rate is fixed or floating. A slightly higher EMI over a shorter tenure often costs far less overall. Try our EMI calculator to model different scenarios before you commit.